Delhi High Court
Brown Forman Mauritius Ltd. vs Jagatjit Brown Forman India Ltd. And ... on 30 May, 2002
Author: Mukul Mudgal
Bench: Mukul Mudgal
JUDGMENT Mukul Mudgal, J.
1. The applicant/petitioner, M/s. Brown Forman Mauritus Limited, (hereinafter referred to as the BFML), by this application has sought the stay of the proceedings in a civil suit No. 93 of 2002 filed by M/s. Jagatjit Industries Ltd., (hereinafter referred to as Jagatjit) respondent No. 2 in the present petition, against certain parties including defendant No. 4, the petitioner herein, and defendant No. 5 who is the present respondent No. 1 herein. While the application is silent about the applicable provision of the Companies Act, the learned Senior Counsel for the applicant, Shri Rajiv Nayyar has submitted that the application falls within the scope and ambit of Section 442 of the Companies Act (hereinafter referred to as the Act) any may be treated as such.
2. The application avers:-
(a) That winding up has been sought by the applicant/petitioner of the joint venture company i.e. the respondent No. 1 under Section 433(f) on just and equitable grounds due to the equal share holding and equal representation on the board of directors in the joint venture company between the petitioner (BFML) and respondent No. 2 (Jagatjit) and due to complete deadlock between the two shareholders by virtue of which the respondent company was unable to function or conduct business. It is also averred in the winding up petition that on termination of the Joint Venture Agreement between the petitioner BFML and Jagatjit, Respondent No. 2, the substratum of the Joint Venture Company was also lost.
(b) The company petition was filed in December 1999 and was being herd from time to time and on 18th April 2002 the winding up petition was admitted and listed for hearing on 29th July 2002. The winding up petition has been opposed by Jagatjit on the ground that it has claims against the Joint Venture Company. Jagatjit claimed that the liabilities of the Joint Venture Company are payable exclusively by the petitioner and deadlock averred in the petition is a contrived one and the termination of the Joint Venture Agreement by the petitioner is improperly motivated. The civil suit sought to be stayed in this application was filed by the plaintiff, Jagatjit (respondent No. 2 herein) on or about 16th April 2002 and summons have been issued returnable on 31st May 2002. That in the civil suit a sum of Rs. 60,457,3225,67/- is claimed as damages for loss suffered by the plaintiff Jagatjit and a declaration is also claimed to the effect that BFML is liable and obliged for performance of statutory and other obligations of the Joint Venture Company i.e. Respondent No. 1.
(c) That the relief sought in the civil suit by Jagatjit is an attempt to enforce monetary claims said to be due against the Joint Venture Company against the other share holders and the other group of companies belonging to BFML i.e. non applicants No. 3 and 5.
(d) The replies to the winding up petition filed by Jagatjit and the pleadings in the plant in the civil suit are similar and many paragraphs in the plaint and the reply are common.
(e) The following please are common in the averments made in the plaint in the civil suit and the reply filed to the winding up petition by Jagatjit.
i) mismanagement of the affairs of the Joint Venture Company by the petitioner and its nominee directors;
ii) poor financial state of Joint Venture Company based by imprudent decisions and policies of the petitioner;
iii) BFML made Jagatjit contribute to Joint Venture Company and its loans;
iv) BFML attempted to set up its independent operations in India during the joint venture with the applicant.
3. The applicant, therefore, submits that the monetary claim in the suit is really against the Joint Venture Company and note against BFML and a shareholder cannot be made liable for any liability or claim made against the company.
4. In view of the fact that the questions concerning the 4 agreements i.e. Joint Venture Agreement, Distribution and Administrative Services Agreement. Supply and License Agreement and Production Services Agreement have been raised in both the winding up petition and civil suit, therefore, the Civil Suit will have a direct bearing on the Joint Venture Company and, therefore, the winding up petition pending before this Court. The applicant has further contended that even though the cause of action is averred to have arisen only in December, 1999, the timing of the filing of the suit on 18th April, 2002 is significant and indeed tell tale and the suit at Kapurthala, therefore, ought to be stayed.
5. In reply the principal contention of Dr. Singhvi, the learned senior counsel appearing on behalf of the respondent No. 2 Jagatjit was that the civil suit and decree which may be secured therein cannot have any effect on the respondent company which is sought to be wound up in this Court. It has also been submitted that since no relief has been claimed against respondent No. 1 company in the suit, this application is an abuse of the process of Court. He has further submitted that Section 442(b) of the Act does not contemplate a stay of such a suit and thus cannot be sued to delay the adjudication of the claims raised in the suit filed in Kapurthala by his client, Jagatjit. The learned Counsel for the respondent has relied upon a judgment of the Hon'ble Supreme Court reported as Official Liquidator v. Dharti Dhan (P) Ltd. in 1975 (2) SCR 964 (47 Company Cases 420) to contend that in Section 442 the use of word "may" ought not to be construed as "shall". In particular Dr. Singhvi has sought to place reliance upon the following passage of the above judgment which interprets Section 442 and Section 446 of the Act:
"Sections 442 and 446 of the Act have to be read together. It is only where the object of the two sections, when read together is served by a stay order that the stay order could be justified. That object is to expeditiously decide and dispose of pending claims in the course of winding up proceedings. A stay is not to be granted if the object of applying for it appears to be, as it does in the case before us, merely to delay adjudication on a claim, and thereby to defeat justice. In other words, a stay order, under Section 442, cannot be made mechanically, or as a matter of course on showing fulfillment of some fixed and prescribed conditions. It can only be made judiciously upon an examination of the totality of the facts which vary from case to case. It follows that the order to be passed must be discretionary and the power to pass it must, therefore, be directory and not mandatory. In other words, the word "may" used before "stay" in Section 442 of the Act really means "may" and not "must" or "shall" in such a context. In fact, it is not quite accurate to say that the word "may" by itself, acquires the meaning of "must" or "shall" sometimes. This word, however, always signifies a conferment of power. That power may, having regard to the context in which it occurs, and the requirements contemplated for its exercise, have annexed to it an obligation which compels its exercise in a certain way on facts and circumstances from which the obligation to exercise it in that way arises. In other words, it is the context which can attach the obligation to the power compelling its exercise in a certain way. The context, both legal and factual, may impart to the power that obligatoriness."
6. Dr. Singhvi has thus contended that since no relief has been claimed against the respondent Company, in the suit, Section 442 cannot be automatically invoked in the present case and the totality of the facts indicate that an interim order as prayed for stay of the civil suit in Kapurthala is not called for. It is further submitted that since the decree of the Court even if granted in the suit, cannot be executed against the company which is facing proceedings for winding up, the relief claimed by the applicant in the present application cannot be granted.
7. In reply to the plea of the learned counsel for the respondent, Mr. Rajiv Nayyar, learned senior counsel for the applicant, has placed reliance on the following passage from the same judgment of the Hon'ble Supreme Court in Official Liquidator v. Dharti Dhan (supra):
"The clear object of the section is that claims in suits and proceedings pending elsewhere which have a bearing on the company's liabilities, may be stayed only until the winding up order is mae, because after the winding-up order has been passed, Section 446 begins to operates so as to automatically transfer with certain exceptions proceedings against the company being would up to the court exercising the jurisdiction to wind it up."
8. He stressed the fact that the Hon'ble Supreme Court has held that another suit which has a bearing on the liability of the company against whom the petition for winding up is presented may be stayed. He further submitted that in the present case the winding up order has not yet been passed in the present case and consequently the above observations of the Hon'ble Supreme Court made in respect of Section 442 of the Act will apply. He further stated that even though no relief was directly claimed against the respondent company, the claims in the civil suit have a direct bearing on the liabilities of the company against which the petition for winding up is pending in this Court.
9. Section 442(b) of the Companies Act reads as under:-
"442. Power of Court to stay to restrain proceedings against company--At any time after presentation of of a winding up petition and before a winding up order has been made, the company, or any creditor or contributory, may-
(a) ....
(b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wind-up the company, to restrain further proceedings in the suit or proceeding;
and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit."
10. The plea of Dr. Singhvi that it is not mandatory to stay proceedings under Section 442 and the power is discretionary is absolutely correct in view of the phraseology of Section 442 and the judgment of the Hon'ble Supreme Court in Dharti Dhan's case (supra) and I have no difficulty in accepting this plea. However, what is required to be considered is whether the facts and circumstances of the present case indicate that the civil suit in Kapurthala will have a bering on the winding up petition. In my view merely because no relief is claimed against the company i.e. Respondent No. 1, does not make this application infructuous. What is required to be considered is the effect that the civil suit has on the winding up petition. The words of Section 442 of the Act are significant and may be contrasted with Section 10 of the Code of Civil Procedure which reads as under:-
"10. Stay of Suit -- No Court shall proceed with the trial of any suit in which the matter in issue is also directly and substantially an issue in a previously instituted suit between the same parties, or between under whom they or any of them claim litigating under the same title where such suit is pending the same or any other Court in [India] having jurisdiction to grant the relief claimed, or in any Court beyond the limits of [India] established or continued by [the Central Government] and having like jurisdiction, or before [the Supreme Court]."
11. Thus Section 10 of the Civil Procedure Code is more strigent in its requirement of parties of two proceedings being same and the same matter being directly and substantially in issue in both proceedings. The requirements of Section 442 of the Act are less strigent and the Hon'ble Supreme Court in Dharti Dhan's case (supra) has eloquently described the requirement of Section 442 to mean that the proceedings sought to be stayed must have a bearing on the winding up proceedings.
12. The Hon'ble Supreme Court has interpreted Section 442 to mean that the proceedings sought to be stayed ought to have a bearing on the proceedings pending in the company court. Such a meaning of the impact of Section 442 of the Act is broader than the ambit of Section 10 C.P.C. Consequently, considering the scope and ambit of the plaint the pleadings contained therein, I have no doubt that the civil suit while not claiming directly andy relief against the respondent No.1 company, nevertheless has a bearing on the winding up petition in view of the common stance in both proceedings by the respondent No.2 Furthermore the timing of the suit coupled the sweep of the observation of the Hon'ble Supreme Court in Dharti Dhan's case (supra) and the totality of facts indicate that the intention of this application is not to delay the adjudication of the claim raised in the plaint. In fact the plaint itself, in paragraph 34, avers that cause of action arose up to December 1999 and there is no averment or indeed any rational explanation forthcoming from the respondent No.2, Jagatjit's side indicating the reasons why the suit was not filed within a reasonable time after December 1999. Thus, having itself filed the suit for such a cause of action arising sometime in December 1999 only in April 2002, the plaintiff can not term the present application as an attempt to delay the adjudication of the claims sought to be raised in the civil suit filed at Kapurthala.
13. Having examined the rival contentions of the parties and having considered the averments which are common to both the reply to the winding up petition as well as the plaint, I am satisfied that the claims raised in the suit even though not directly seeking a decree against the company, will nevertheless clearly have a bearing on the proceedings for winding up of the company pending in this Court. Accordingly, the applicant is entitled to the orders prayed for in the present application. The proceedings in the civil suit pending in Kapurthala court i.e. suit No. 93 of 2002 shall consequently remain stayed until further orders.
14. Accordingly the present application stands disposed of.